Shares in energy consultancy Utilitywise (UTW) fell 15 per cent on the day management revealed that cash profits for the full year to 31 July would come in "slightly below market expectations" due to increased investment in the business. This is despite an expected 42 per cent increase in revenues year on year to around £69m.
The group increased headcount at its enterprise division - which caters to small, medium and multi-site businesses - by more than a third in the second half of the year, to 610. This beefed-up workforce will focus on new customer acquisitions, which management believes will be key to driving the division forward. The group has had some success with this already: excluding European customers, numbers have increased by a quarter to around 26,000. The group also accelerated investment in its marketing and sales capabilities, building out its multichannel sales strategy and deploying a new customer engagement team.
The group's net debt stood at £7.5m at the end of the financial year, compared with net cash of £9.8m in July 2014.
Panmure Gordon says...
Sell. The shares have underperformed by 30 per cent-plus since the start of the year, when we highlighted our concerns about the company's level of accrued revenue - that which has been booked but not yet paid. This was never going to disappear in a hurry - indeed, accruals doubled in April's half-year results - but we now believe that core growth is slowing, and that the working capital absorption in the year could be £18m-plus, generating accruals that could be almost twice this year's cash profits. We are cutting our 2014-15 cash profits forecast by 12 per cent to £16.2m, despite headcount ending up within 10 people of the 600 that we forecast. Expect EPS of 14.1p for FY2015, rising to 19.3p for FY2016.
Liberum says...
Buy. The trading update confirms the growth potential at Utilitywise, with revenues above expectations. However, a higher-than-forecast mix of contract extensions as opposed to new business, plus the investment to support growth, means we have trimmed our estimates for cash and profits. We expect the enhanced sales capability to drive new business wins in FY2016, and for balance-sheet metrics to improve over the next 24 months. Successful execution could support a re-rating towards a multiple more reflective of compound annual growth in EPS of 30 per cent and the valuation of similar companies on around 17 times. Buy.
